the speculator pick

I think you will find this is the reason for the breakout in this stock:

The Speculator: iron awe

By David Haselhurst, ninemsn Money
April 16, 2008,
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When the first iron ore was shipped from the Pilbara in the mid-1960s it was high-grade hematite (with around 66 percent-plus iron content). It was sold for less than $US10/tonne delivered to Pilbara ports.

Today, that same ore trades under contract for around $US50/tonne. Yet such is the demand there are expectations that the contract price will rise by 50 percent or more in a month or so, with spot prices recently reported up to $US200/tonne.

The boom in iron ore demand has opened a door of opportunity for new miners, including the owners of lower-grade magnetite ore, which typically contains around 30 percent iron and needs to be upgraded for economic shipment to its target markets.

Ideally, such magnetite ore should be near a shipping site (thus eliminating the need for an expensive railway) and have ready access to the upgrading technology.

A company with those attributes is Australasian Resources Ltd (ARH.AX


AUSTRALASIAN RSC20 April,200820/04/2008 21:41 Sydney, Australia.
Value Change % Change
1.900 +0.105 +5.850%

Company overview
Real-time quote
ARH.AX , 1.900, +0.105, +5.850%), which a year ago acquired a magnetite resource of more than 1 billion tonnes on the Pilbara coast. On the back of that the company forged a development deal with Shougang Corporation, China's No 4 steelmaker with an output of 11 million tones in 2007, and plans to almost double production to 20 million tonnes by 2010 with a new steel plant in the port city of Tangshan.

All of Shougang's domestic iron ore is presently sourced from declining reserves of magnetite.

ARH has on issue 441 million shares which have traded up from a low last year of 86.5c to a high of $2.75, before coming back in the recent market malaise to around $1.55. At that price the shares carry a market capitalisation of $661 million. Remaining cash stands at $30 million, sufficient to fund the company’s program for another six to nine months.

In addition, ARH has 50 million options, of which 28 million are held by Shougang exercisable at $1.50 by 2011. Another 22 million are held by directors and staff with the bulk exercisable at $1.18.

ARH's biggest shareholder is mining identity Professor Clive Palmer, who was the vendor of the magnetite prospect into the company. He holds 59.3 percent of the shares, all escrowed from sale until April, 2009. (Palmer’s academic status is the result of an honorary doctorate of laws awarded from Victoria’s Deakin University.)

His company, Mineralogy Pty Ltd, held or holds a large group of tenements stretching south-west from the coast, embracing an estimated resource of 60-100 billion tonnes of resource grading 30-31 percent iron.

About 10% of that is held by ARH, which is negotiating to as much as double its landholding in the south-western part of the ground to add to its present area known as the Balmoral South Iron Ore Project. This is located 80km south of Karratha, 30km inland from a proposed port on the coast and 10km west of the main Karratha to Bunbury gas pipeline. (It's envisaged a conveyor system may be built to transport ore to the coast at an operating cost of about $2/tonne.)

The company’s second biggest shareholder is the Shougang group with 8.4 percent, plus a commitment due no later than June 20, 2008, to fund 100 percent of the project costs interest free. (That cost is so far expected to be between $US1.7 billion and $US2 billion.)

In exchange, the Chinese company will earn a 50% share in the initial project to mine 40 million tonnes of ore a year over 25 years (including a total 70mtpa material movement) to process into 12 mtpa of exportable product. The exportable product is scheduled to comprise:

5 mtpa of concentrate — 89 percent iron (32 micron grind), and 7 mtpa blast furnace pellets — 68 percent iron.
First production is due in 2010-11. According to a preliminary feasibility study, ARH managing-director Andrew Caruso expects a gross profit margin of around $US50/tonne after covering costs of $30-40/tonne for mining, concentrating and loading at the port. This compares with a present cost of around $15-20/tonne for mining and direct shipping of hematite. But the higher gross profit margin will result from the higher grade of the concentrate.

Immediately to the north-east of the ARH ground also purchased from Mineralogy Pty Ltd by CITIC Pacific Ltd (30 percent owned by the Chinese government) a project twice the size of Balmoral is being developed, with opportunities for sharing infrastructure from port works to gaslines.

ARH’s negotiations to double its resource base are expected to be determined by late April, plus there is every confidence the June 20 deadline for a development commit will be met. On top of that, ARH is still pregnant with an entitlement issue to a spin-off of its former nickel prospecting assets as a plus to new investors.

I've bought 5000 at $1.50.